Raising The Roof

KEN HENDRICKS MAINTAINS THAT HE COULD TAKE any small handful of items in a do-it-yourself store and build a national business around them. Plumbing supplies, building materials: you name it, he'd distribute it -- and do it more profitably than the next guy. The trick, says Hendricks, is knowing the particular product line inside out, and knowing the customer even better.

"K mart will sell you roofing supplies," he observes, the rolling farmland of southern Wisconsin dissolving beneath his sports car's wheels, "but if you're a small contractor like I was, you can spend half your morning waiting in line for a salesclerk who knows more about lawn furniture than about vinyl siding. There goes your job time, your profit, the whole deal."

He lapses into silence, savoring, perhaps, the distance traveled from his days driving a pickup truck and today, in the driver's seat of his Mercedes-Benz 450SL. His gaze stays fastened to the road.

"What I really am," he adds softly, "is a renovator. I buy failing businesses -- not start-ups, but ongoing businesses -- and rebuild them. It's the same thing I've done with houses, trucks, whatever I find that holds value for me when I see it in its completed form. You follow me?"

The question seems at once rhetorical and definitive. In five years of relentless acquisition, Hendricks's firm, American Builders & Contractors Supply Co. (ABC), of Beloit, Wis., has risen from the seeds of a small-town roofing business and real estate concern to become one of the industry's hottest properties: a 62-outlet, $183-million-a-year chain of wholesale roofing and siding supply distributorships stretching from Fredericksburg to Fort Worth. Some of these centers Hendricks picked off as failing independents, others he picked up from major manufacturers unable to stay solvent in a generally low-margin, high-service industry. By whichever coordinates it is plotted, ABC's growth curve has carried the company from #3 to #2 to #1 on successive INC. 500 lists -- a rare trifecta at any track. Perhaps more surprising, the 26-state operation is overseen by a central staff of 17 -- only four of whom have managed a wholesale-distributor chain before and six of whom happen to be members of the chief executive officer's immediate family.

Hendricks himself calls ABC "the biggest small company in America," and to the extent that that's true, ABC is also a testament to its founder's blend of practical experience and entrepreneurial fortitude. The son of a Janesville, Wis., roofer and lumberyard owner, Hendricks paid his dues as a factory worker, electrical repairman, and roofing contractor. In the 1970s, he branched out into other, more lucrative directions: local real estate -- he bought up 200 houses and 2.5 million square feet of property in the Beloit area alone -- and an expanded roofing business that did government-contract jobs here and abroad.

Before launching ABC in 1979, however, his biggest claim to local fame was probably the purchase and restoration of "Stone-henge," an English Tudor manse built by George Parker, the late founder of the Parker Pen Co. Like his subsequent approach to the wholesale roofing business, the restoration revealed Hendricks's fanatic dedication to both dream and detail. Perched high on a bluff overlooking the Rock River, the house sat abandoned to vandals for 20 years, falling into such a sad state of disrepair that even the squatters had quit it for greener pastures.

Hendricks had coveted Stonehenge even as a kid, and he saw in it the opportunity to restore "something of value" to something of grandeur. He lived in a job-site trailer for six months, personally supervising the rescue project right down to replacing all the old oak flooring and leaded-glass windows. It was, like ABC, very much a family affair. While Hendricks pored over every stone and beam, his wife, Diane, managed their real estate interests, and their children pitched in on the cleanup operation. Once Stonehenge was restored, the Hendrickses cast about for an opportunity to build something even grander.

"Ken had always enjoyed roofing," Diane explains, "but what he really liked was buying it. So we talked about getting into the distribution end. He's a junk man, you know, and he saw a chance to take an old concept and make it fresh again."

So Hendricks started on a new kind of restoration. He began rather modestly, buying three Midwestern independent roofing-supply distributorships in 1982. His purchasing power came from his real estate holdings, the only capital source he could count on; his roots were in the recession-racked Midwest, after all, where plant closings predominated and cash was as short as a loan officer's temper. To the local business establishment, moreover, he was an outsider, a guy you never saw down at the country club. To the bankers, he was something conceivably worse: a wild-eyed entrepreneur with more practical experience in shingling than accounting. None shared his insight into the wholesale-roofing business, which was split between the mom-and-pop independents and the major manufacturers' outlets. If both sides lusted after big commercial accounts, if all found profits hard to come by during slippery economic times -- well, hey, that was the nature of the game, right?

Perhaps not, thought Hendricks. He looked upon the industry with a renovator's eye. What would happen, he wondered, if you combined the product knowledge and customer service of the independents with the financial clout of a national chain? Suppose you concentrated on small contractors rather than the big accounts that are more vulnerable to housing-market downturns? Suppose you managed the company in a way designed to exploit the peculiar characteristics of the market? You would delegate to the local distribution centers all decisions having to do with providing service to the customer, with cash incentives to improve profit margins. You would charge them a minimal fee (1% of gross sales), and because cost control is critical in a low-margin business, you would centralize every facet of every support system -- truck leasing, real estate, advertising, even sign painting -- in Beloit, under tight budgetary restraint. Might you not create opportunity where none had been foreseen?

You might, and Hendricks did. Having quickly secured a toehold in the Midwest, he soon saw other areas of the country fall into the frame like so many jigsaw-puzzle pieces. In 1984, ABC picked up 13 East Coast distributors from G.A.F. Corp. and became, in the words of William Nelson, a former Beloit banker and now ABC's vice-president for corporate affairs, "a major player in this marketplace overnight." In April 1985, five more Lower Midwest affiliates were added. In December, eight Texas wholesalers doing a total of $120 million annually joined the ABC corral and nimbly jumped from $400,000 in monthly losses in one quarter to $400,000 in profits in the next quarter -- during one of the worst state recessions ever. Nine more Deep South affiliates were added just this September, and few in the industry harbor serious doubts that Hendricks will make a real run at his avowed goal of 200 ABC centers by 1990.

"Ken does his homework," says Sherman Davis, of Globe Industries Inc., an ABC supplier. "You can wander around every nook and cranny of this country, and Ken knows every supplier and whether he's good or not. Most guys know their backyards, but not the whole territory the way he does."

"Everyone in this industry thought he couldn't pull this off," adds Ron Hritz, vice-president of purchasing and a 15-year veteran of the roofing industry's manufacturing side. "They went from 'It'll never happen' to 'Well, he's a flash in the pan.' A lot of them are still wondering what happened."

They would wonder less if they saw Ken Hendricks at work. Although he swears he's not a detail man, he can rattle off the location and status of virtually every truck and every inventory load in ABC's domain. He takes all calls from his managers, and while it remains their responsibility to run their own shows, woe to the field guy who thinks Hendricks might have forgotten a salient sales figure. He never does.

"Ken would have made a great tax lawyer," says Nelson. "He's unique. He never forgets a number, and he doesn't take no for an answer, either. When we bought the G.A.F. stores last year, we were up against a bunch of New York attorneys who didn't even know where Beloit, Wisconsin, was. By the time Ken finished with 'em, they barely knew where New York was."

Which is not to say that the CEO runs a one-man show. Diane Hendricks, for example, handles all of ABC's legal and insurance matters, freeing her husband to focus more on long-range planning. Daughter Kendra, 27, is responsible for ABC's centralize accounting and finance functions. Another daughter, Kimberlee, 25, is treasurer of the dealer supply division, and Kathy, 23, installs computer systems for the distributorships.

Still, if there is an underlying secret to ABC's success, it lies in Hendricks's determination to exert unilateral control over every aspect of support services provided to the 62 ABC distributorships. When he asserts that he could turn a profit on any hardwarestore item, he means precisely this: that the margins in the wholesale business are primarily in overhead and cost control -- in the dozens of tiny details that Hendricks is so good at, whether they have to do with restoring a home or restoring a company.

No line item, therefore, escapes ABC's meticulous attention. A prominent one is product price, which the company minimizes through volume purchasing. While individual centers are not obligated to carry all ABC lines, the ones they do stock reach their shelves at extremely competitive prices. Another is the cost of delivering to the end-user, which can eat into the profit margin of what are low-ticket items to begin with. ABC's leasing subsidiary of 800 trucks, cars, and forklifts helps hold this cost in check by buying and maintaining less-than-new equipment, usually at substantial savings.

And the list goes on. Leasing arrangements, for instance, which are handled through ABC's real estate division, reflect Hendricks's flair for taking old commercial space and revitalizing it. Inventory turnover and accounts receivable, the twin banes of most independents' existence, become the centerpieces of ABC's profit-sharing plan, a formula that rewards individual managers for moving product quickly. The average industry figure for inventory turnover is 4 to 6 times annually; the average ABC figure is 10 to 12. And corporate overhead is such an abiding concern that ABC executives automatically schedule wee-hour plane trips if it means they can save $50.

The effect of all this penny-pinching is both cumulative and dramatic. With Hendricks minding the ABCs, a $7,000 storefront sign goes up for $350, and it goes up overnight. Blow a truck engine in Baltimore? Ship it to Beloit and get a fresh one; don't wait for some Maryland mechanic to send their kid through college on the cost of a valve job. Asked to explain how 13 G.A.F. stores losing $1.7 million annually posted a $1.2-million profit for ABC, the CEO says, "They were leasing $2,000 copying machines for $700 a month. Big companies think that way. We don't."

Jim Flickinger has seen both ways of thinking, and he obviously likes the Beloit way of doing things. As manager of ABC's Wilmington, Del., center, he continues in the same slot he once occupied with G.A.F. Like most of his G.A.F. counterparts, Flickinger owes his job to Hendricks's conviction that the blame for their failure lay in corporate hands, not theirs. And now? His revenues are up 34%, and Flickinger finds fewer layers of management and a degree of accessibility to the top man himself that would have been unthinkable under the previous regime. But the biggest benefit, he says, may belong to the customers: not only do they have better inventory from which to choose, but their needs as businesspeople are also more keenly appreciated by the folks in Beloit.

"Credit and collections make or break this business," Flickinger points out. "G.A.F. had this philosophy that one central office in Wayne, N. J., could collect on their accounts all over the United States. What they never understood was you've got to know each account personally, know their situation. I mean, what's the point of taking [the small contractors] to court and maybe putting them out of business? You think that helps you in the long run? No way.

"Ken gives me all the responsibility for running my business," he adds," "but he also gives me all the control. I decide what product to carry. I decide when to go out and collect an account. If I fall behind in my receivables, sure, I'll be penalized for it. But I'm out there making those calls."

Flickinger points out that he's also carrying $50,000 to $70,000 credit accounts that G.A.F. would have floated for $10,000 to $15,000 -- and hasn't had to write one off yet.

Back in Beloit, meanwhile, Hendricks concedes that his growth goals for ABC are bound to tax even his skills as a builder. "Some people around here ask me why we don't slow down and get better organized," he says. "My answer is, Hey, we're already better organized than any of our competitors -- let's go do it. But there's a saturation point to all this. In five years, I might hire another CEO and go find something else to do -- something that challenges me, that I can look at and see in its completed form. You follow me?"